Forbes
How Amazon Transforms Investor Tension Into Creative Tension
Jeff Bezos: the master. (Photo credit: jurvetson)
One of the big financial stories of 2014 has been Amazon versus its investors. The company’s stock, after climbing nearly 40% in 2013, started to slip early this year, then plunged 11% on the last day of trading in January. Throughout February, the stock remained in the doldrums.
Investors, it seems, are weary of Jeff Bezos’ practice of plowing Amazon’s oversized revenue into secret projects designed to grow the massive company even more. The stock’s big drop in January coincided with the company’s announcement that it planned to raise the price of Amazon Prime, a sign that investors don’t trust management to use whatever money the price hike might generate to benefit shareholders.
Amazon is a striking case of tension between investors and management, but it is hardly unique. The dynamic exists in most big and successful public companies, and it is present in privately held firms and many startups.
Investors, after all, put money into companies in order to get returns. But companies that sacrifice growth for profits are at risk of failure. In his landmark book The Visible Hand: The Managerial Revolution in American Business, historian Alfred Chandler documented how throughout U.S. history, fast-growing companies run by skilled managers were able dominate markets. The lesson for companies today: Get big fast. Amazon’s savvy managers know that focusing on growth is their path to success.
What is remarkable about Amazon is how skillful the company is at managing opposing interests—that is, at transforming tension into creative tension. While investors may be unhappy in the short term with the way Amazon invests its resources, they are hard-pressed to walk away in the long term from a company that dominates global e-commerce and is starting to extend its reach to other sectors. Amazon management seems to know just how far it can push investors in the interest of maximizing growth.
In the same fashion, Amazon has produced creative tension with the open source community. The company built its e-commerce platform, Amazon Web Services, largely with open source tools, and it relies on open source as the foundation for most (if not all) of its services and platforms. However, some open source advocates contend that Amazon owes the community more than it currently provides. Will the company cut itself off from the best developer talent because of a lack of OSS community participation? It’s hard to say, but businesses such as Netflix, Facebook, and even stalwarts such as IBM have seen an enormous “return on participation.”
Amazon’s response to the wariness that open source proponents feel toward it and the recent concerns of investors provides a lesson in how to constructively balance external and internal pressures, self-interest and community interest, and personal vision and the pragmatic realities of profit and loss. In this regard, Jeff Bezos is the master, navigating when to open and when to close in a way that is right for his company and ultimately right for the myriad stakeholders that depend on instantaneous access to the world’s largest marketplace.